The 10 Important Rules of Intra-day Trading.

The 10 Important Rules of Intra-day Trading.

Defining Intra-day Trading:-
Purchasing and selling equity / commodity on the same day is called intra-day trading.

For example: You have just purchased fifty shares of ICICI Bank in the morning, when the market opens. You hold it for one, may be two or three hours, and then sell it before the market shutters up.

Many people are fascinated with intra-day margin trading. A high percentage of young and new day-traders believe that all they need to do is have a dematerialised account, invest some cash at the beginning of the day, and then walk home with a cool, quick gain of five–ten percent at the end of it.

For the inexperienced, intra-day trading specifically refers to dabbling in shares on a daily basis, contrary to the usual methods of investment – wherein you invest in a share and then plan on selling it either in a few weeks, months, or years.

Intra-day traders have to deposit a certain amount of cash with their broker – this is your margin money. Depending on the amount deposited, your broker will give you a trading limit, which is normally a simple multiplication of your deposited amount.

Example:

You deposit Rs. 20,000 with your broker – he can then let you purchase or sell shares worth Rs. 80,000, which is your initial deposit multiplied by four, on that day. When the day ends, you have no choice but to sell whatever stocks you’ve purchased – even if it means that you’ve made a loss. This is called “squaring off a trade.”
Likewise, if you also sell a stock at an elevated price and then purchase the same number of stocks at a lower price later on in the same trading day, then this is also a “squaring off a trade.”
In either example, a profit is still made.

However, the unfortunate opposite can also occur.

You purchase a stock at an elevated price, but then the price of the stock plummets after. Before the market shutters up at 3:30PM every day, you will be required to sell your stock and “square off”.

This is the key rule about day trading – you have to sell your stock at the end of the day.

If you sell a stock at a price lower than your original purchase amount, then you make a loss.

If you sell a stock at a higher price but then repurchase the stock later for more than what you originally purchased it for, you again make a loss.

Thus, intra-day trading is an unpredictable beast – if not handled with care, it can turn on and savage young, novice day traders. In-depth knowledge and insight are required to navigate these dangerous waters.
Don’t be discouraged, however – just because there are high risks, doesn’t mean that you should avoid it!

You just need to be cautious whilst trading, and remember several key points. Hundreds of books and e-books have been printed which detail the ins and outs of intra-day trading, but here are Ten Key Rules of thumb you should always keep in mind.

• Rule 1 : Never rush – take your time. Arrive at the market at least twenty minutes in advance, with your trading list at the ready.

• Rule 2 : Keep your cool, remain calm, and maintain a sound balance between your personal and professional life – these two should never interfere nor conflict.

• Rule 3 : Never enter a trade if you’re unsure if the prices will rise or fall. Begin your trading around 09.25AM, ten minutes after the markets open, to see the market direction clearly.

• Rule 4 : Never take the risk of spending more than ten percent of your trading capital, in a single trade.